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Why Do Most Traders Lose Money?

The fact is that most traders, regardless of how intelligent and knowledgeable they may be about the markets, lose money. Are the markets really so enigmatic that few can profit or are there a series of common mistakes that befall many traders? The answer is the latter.
The good news is that the problem, while it can be emotionally and psychologically challenging, can be solved by using solid risk management techniques.
Today, we will discuss 2 key aspects of risk management.
Risk a little to make a lot – use at least a 1:2 risk to reward ratio
Risk a small portion of your account – risk less than 5% of your account ... (full story)

ASK to the LTCM guys please using OPM and lost. The black swan (Russian crisis ) visited them bacause we live in a world of models (not top models ) but are only models . Algos are only a small part in the total traded volume at Nyse. Funds and specs are trend follower but which is their exposure at a top ? Try to Exit at a top and you can't find any buyer ...
What is a 50 points stop ? I can't understand a buy stop market order ? Or a market oder with a sell limit stop 50 points from your market order ?

my opinion about R/R is a little different - when started with FX in late 2010, for first few months coded many EA's based on standard, commonly used by "retailers", rules, indicators, oscillators, etc. and very often arrived to conclusion that, mostly in intra-day TFs, possibly "working" risk/reward was 3:1 as if the statement:"much you want to risk, much you will get" was valid. abandoned my "automated trading projects" when realized that I can not be better than Getco ;] and is too hard to "follow" algo traders.

If you publish an article, and people are writing negative comments dismissing the article using unfounded and unsubstantiated(and ultimately unprovable) claims, or are differing to arguments of the semantic variety to purposefully avoid the main issue altogether, then you know you've hit a nerve.

what I can not understand: if it is all about money management, consistency, right strategy, and technical analysis etc. and guys from dailyfx.com have the key and tools to all those big profits in FX why they need to conduct this huge, complex web portal, making those efforts to write articles about analysis, to make profits from advertisement etc.? who are they? angels?

Edit: suppose that you have completed your tests, worked hard few months to develop your strategy, found your Holy Graal and you do not know how long it will be yet profitable in the future (you should try to simulate market and test your strategy forward and this is pretty hard task). then, what, when work is done you are assembling an web portal to share your startegy with entire world? basically giving money for free?

because there trade goes against them basicly, then the question is, why do trades go against you? the answer to that is beacause of a wrong judgement, then the question is, why did you judge it wrong? the answer to that is because you hoped it would go your way of your analysis, then you have to ask why is your analysis wrong? the answer to that would be because you cant analyze for shit, then the question would be, why cant you analyze for shit? the answer would be because your dumb....so the answer to the articles question to why you lose your money is because your dumb

There's nothing wrong with the article and money management is more important than most traders believe . Its not uncommon for even the best traders to have 2,3,4 or 5 losers in a row so if you risk 10% of your capital you could easiliy lose your account especially if you hang in when you're clearly wrong or you failed to follow your rules which need to account for the type of market you are trading. For example if the market is slow with little news then be careful about breakouts. Whilst trading itself is very simple it takes a a long time to understand and apply all the important aspects so as to take money out of the market on a consistent basis. Because of this together with fact we are hardwired from an early age into wanting to be right all the time this poses a pschological challenge for new traders. Some manipulation of prices does go on especially at key levels where the big money will run stops, again this is part of trading and something you need to be mindful of.

Trading in the stock market is like being in a Monopoly board game of ten total people and one person will end up winning the majority of everyone else’s money before the game is over. This is much like in trading where 10% of traders are profitable and the other 90% lose or just break even int he long term. If the 1 in 10 Monopoly winners consistently won game after game then you would want to know what they were doing differently than the other nine consistent losers. Well I do not know what the Monopoly winners were doing but here are what rich traders are doing differently. These principles were compiled after 13 years of successful trading and studying the winning traders through out history, Livermore, Darvas, O’Neil, Micheal Covel’s Trend Followers, Jack Schwager’s Market Wizards and many more. I also sent these principles to many rich traders and market historians to double check my findings like John Boik, Alexander Elder, and Chris Kacher and many others. I got two thumbs up. So for a free short cut to learning how to win in the markets here you go. (Of course the next step will be do you understand these principles? Many are very counter intuitive.)
PSYCHOLOGY
New Traders are greedy and have unrealistic expectations. Rich Traders are realistic about their returns.
New Traders make the wrong decisions because of stress; Rich Traders are able to manage stress.
New Traders are impatient and look for constant action. Rich Traders are patient.
New Traders trade because they are influenced by their own greed and fear; Good Traders use a trading plan.
New Traders are unsuccessful when they stop learning; Rich Traders never stop learning about the market.
RISK
New Traders act like gamblers; Rich Traders operate like a businessperson.
New Traders bet the farm, Rich Traders carefully control trading size.
For New Traders outsized profits are the #1 priority, for Rich Traders managing risk is the #1 Priority.
New Traders try to prove they are right. Rich Traders admit when they are wrong,
New Traders give back profits by not having an exit strategy. Rich Traders lock in profits while they are there.
METHODOLOGY
New Traders give up and quit, Rich Traders persevere in the market until they are successful,
New Traders hop from system to system the moment they suffer a loss. Rich Traders stick with a winning system even when it’s losing.
New Traders place trades based on opinions. Rich Traders place trades based on probabilities,
New Traders try to predict. Rich Traders follow what the market is telling them.
New Traders trade against the trend; Rich Traders follow the markets trend.
New Traders follow their emotions which puts them at a disadvantage. Rich Traders follow systems that give them an advantage.
New Traders do not know when to cut losses or lock in gains, Rich Traders have an exit plan.
New Traders Cut profits short and let losses run. Rich Traders let profits run and cut losses short.
These 18 principles and many more are covered in my top selling book on Amazon New Trader, Rich Trader. The book has one chapter dedicated to explaining each principle in narrative form with a dialogue between a rich trader and a new trader.

Trading in the stock market is like being in a Monopoly board game of ten total people and one person will end up winning the majority of everyone else’s money before the game is over. This is much like in trading where 10% of traders are profitable and the other 90% lose or just break even int he long term. If the 1 in 10 Monopoly winners consistently won game after game then you would want to know what they were doing differently than the other nine consistent...

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psychological problems you have listed are 1000% right. I am feeling it.

Agree, That's my MM too! easy and safe time for calculation! If your SL not more then 100 pips it still below 10% risk but for sure you must have a plan that won't lose 10 time in a row! With this MM, good planing, times and good emotional i makes $500 to 9k in less then 2 months!

This article sounds pretty good and if applied strictly the risk of losing big money can be minimized. Normally i have seen 10 to 30 pips stoploss are hit on both side wether you play long or short. This market is controlled by big players and a small players like us have to be more cautious. Suppose when you enter in any position with ur intution or price momentum if you fall wrong its better to exit trade immediately ...with a minimum loss and enter in another trade with accuracy..

Plenty of reasons to lose money, but I make money because I've probably spent over 20,000 hours in live markets refining a method that covers every contingency which eliminates me having to think. Most people can't handle not thinking; they feel the need to contribute, which leads to losing...

If you enter a trade with an open possibility of 100 pips wrong entrance you're just ALIEN with trading. If you weren't you could at least tell the difference between a bad trader and a bad trade.
Likewise, if you're so indifferent of a 100 pips profit and stay open for the 200 without any further action(close half position or making a positive average jackpot) you're going to win the Razzie trader award.

But the most dangerous of the proposals is that 5% risk of your account on all your open trades. The danger is not so much in the risk percentage but to have more than one open trades. Man, you must be 1000% sure when you put your hard earned money on the line. What the chances are to be 1000% sure AND CORRECT for above one positions at the same time?

Most traders lose money because they trade intuitively rather than systematically.Money management is fine and helpful, but the single essential ingredient to trade succsessfully is a replicateable, systematic approach to evaluating price action and thereby pedicting outcomes that is both accurate and time tested.Such an approach and evaluation is refered to as an algorithm. Developing your algorithm requires years (yes years ) of observing price action under varying conditions and markets and modifying your conclusions as experience dictates.It further requires serious objective backtesting on a continuing basis as you may modify your original conclusions as well as the development of parallel algorithms that may be applied in certain unusual or infrequent circumstances. Although the market is always subject to random price action ,based on secular (non-technical, unpredictable, unchartable) events this writer believes that most short term price action is rooted in technical elements that can be incorporated into basic algorithms and used to profitably forcast outcomes.Any trader , horse player or sports better can make or lose a 50 to 100% return over the short term, but bigger profits belong to the tenacious traders who can come to the market every day, . follow their algorithms and make relatively small ,but consistent profits

Lots of opinions here and most seem right. Simply put, humans are wired to suffer loss more easily than winning because our wiring discounts the pain of losing. Thus, most traders find closing a losing trade harder than letting it run, even though equity shows the money is already gone and the market is clearly going to continue against them. It doesn't take many psychological errors to lose an account, which is why forex is incredibly risky. (There isn't any other investment that I know of where you can lose so much so fast.) Doubling an account or more doesn't lower this risk; it likely encourages traders to increase risk. As a long-term trader, trading isn't hard. It's just "click" combined with relentless discipline and humility because the market is always right.

this article is full of holes. Of course risk management is the single most important thing in trading but, as timetraveller pointed out, 5% risk per trade is not managing risk. This is irresponsible reporting

The other problem is the risk reward part. There is no mention of the impact on win rate. Although all things being equal, 2:1 is better than 1:1 but, in the real world The higher the target, the lower the win rate. The lower the win rate, the more the drawdown. The higher the drawdown, the less money can be risked per trade. By being able to risk more per trade, 1:1 can be much more profitable.

All in all this article is half baked. It is in the interests of the market maker to have their clients risk 5% and target 2:1, not the trader

Most traders lose money because they trade intuitively rather than systematically.Money management is fine and helpful, but the single essential ingredient to trade succsessfully is a replicateable, systematic approach to evaluating price action and thereby pedicting outcomes that is both accurate and time tested.Such an approach and evaluation is refered to as an algorithm. Developing your algorithm requires years (yes years ) of observing price action under varying conditions and markets and modifying your conclusions as experience dictates.It...

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The market isn't random. However, it takes years and much brain ache to detect and reason through it's motion.

I found if this is a good article. It explains the basic principles of money management in currency tradings in a very clear and explicit manner. Off course the author did not claim if money management is the only skill you'll need to be a sucessful trader. Apart from money management, a trader also needs the knowledge on how to read trends both fundamentally and technically.

Let's spread more constructive thoughts rather than burning each others' opinion. ^peace^

There's nothing wrong with the article and money management is more important than most traders believe . Its not uncommon for even the best traders to have 2,3,4 or 5 losers in a row so if you risk 10% of your capital you could easiliy lose your account especially if you hang in when you're clearly wrong or you failed to follow your rules which need to account for the type of market you are trading. For example if the market is slow with little news then be careful about breakouts. Whilst trading itself is very simple it takes a a long time to...

Thanks Robert7 and quest 4 your comment. I got my own methode. TP only 10 pips, SL 50 pips, and put your Open position right by following the trend, thats all!! I trade only 1 hour a day, i got 23 hours to do other things.

Plenty of reasons to lose money, but I make money because I've probably spent over 20,000 hours in live markets refining a method that covers every contingency which eliminates me having to think. Most people can't handle not thinking; they feel the need to contribute, which leads to losing...

Most traders lose money because they trade intuitively rather than systematically.Money management is fine and helpful, but the single essential ingredient to trade succsessfully is a replicateable, systematic approach to evaluating price action and thereby pedicting outcomes that is both accurate and time tested.Such an approach and evaluation is refered to as an algorithm. Developing your algorithm requires years (yes years ) of observing price action under varying conditions and markets and modifying your conclusions as experience dictates.It...

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Thank you! Someone finally said it perfectly! It's all about an algorithm. I believe it's impossible to be regularly, long-term profitable unless you are 100% systematic in your entry and exit decisions (even if the system itself changes over the life of your trading--and it probably will!). But if you CAN systematize it, you have a chance at being regularly profitable...that's all an algorithm is, a codified system.

I also agree that it takes YEARS to really formulate something that works in all market conditions and by "works" I don't mean *always* profitable, I just mean consistently profitable.

My 2 year anniversary of market analysis is coming up in 5 days and I only now, after 7,000 hours of watching charts, making over a dozen bad models, countless revisions to each bad model, and 5 major milestones in understanding, FINALLY have a stably working algorithm.

Good luck to all you noobie traders. You might already know it, but getting good at trading demands some of the greatest discipline and growth that you will ever experience. It's been an amazing adventure and I encourage you to keep walking!

The article addresses risk management, which is an absolute requirement to stay in the market, and allow one to become successful. It is also under complete control of the trader. A rare combination, when set against all other factors in play, which we can not control, understand or even have any knowledge of. This article however, seems bereft of content to the point of being rubbish.

Most traders lose money because it is their job to lose money.
A society in a free market economy frawns upon successful speculation.
Someone who really knows his trade and produces real products helpfull to society - for example a farmer, will transfer risk to a speculator. Who do you think will and should know better? On average the trader will lose and that is the way it must be. I would rather have bread in the store than a trader with a winning trade. This society will engourage your average joe to open a trading account. I hope that never stops...

" Why Do Most Traders Lose Money?" --Because we are ordinary people.We don't have access to get full and right power and information to manipulate market.Believe or not, if I'm seating in EU parliaments or FED ,with god power (example Baroso,Merkel... etc.), don't need to study PA, TA or any shit, even no problem if I will be blind. You know my friend?

If you publish an article, and people are writing negative comments dismissing the article using unfounded and unsubstantiated(and ultimately unprovable) claims, or are differing to arguments of the semantic variety to purposefully avoid the main issue altogether, then you know you've hit a nerve.

The article addresses risk management, which is an absolute requirement to stay in the market, and allow one to become successful. It is also under complete control of the trader. A rare combination, when set against all other factors in play, which we can not control, understand or even have any knowledge of. This article however, seems bereft of content to the point of being rubbish.

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It is prime rubbish and I suspect time has been spent here by most because it was that kind of week - nothing doing.

Most (majority) people lose money, because markets are highly efficient. Whatever those people do does not work. There is another minority which knows how to make money, but has psychological problems to do so. They mess up their trades, jump out too soon or get out too early just to stop the pain. And there is another even smaller minority which makes money.

I don't think money management is accountable for people losing money or any of those reasons in the article. It's too shallow.

1) We don't have the money to manipulate the market or carry out algo trading

2) We don't have connections to do insider trading

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Exhibit A - Ladies and Gentlemen I use Forexia's own words to display why people will lose money in the financial markets time and time again; the inability to take personal responsibility for their dumb mistakes.

Forexia, are you still holding those EUR/USD long positions that you opened when the price was 1.29? How's that working for you?

" Why Do Most Traders Lose Money?" --Because we are ordinary people.We don't have access to get full and right power and information to manipulate market.Believe or not, if I'm seating in EU parliaments or FED ,with god power (example Baroso,Merkel... etc.), don't need to study PA, TA or any shit, even no problem if I will be blind. You know my friend?

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God what a lame excuse, it doesn't take much effort to learn how to read a daily chart does it?

People are losing simply because they are trying to predict this market that is unpredictable.

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If you can not properly predict the market it means you are an idiot and you can never be a trader and you have to stop trading immediately, OK.... if you can have access to this wealth of technical and fundamental and also news sites and analysis and you can not predict the market it simply means you are not an idiot you are a DONKEY with the biggest ears ever..... and you have to stop trading, we are talking about thousands of traders that work for big firms and the predict the market in a severly wrong way and they insist they are right but really they are very big market donkeys hehehehehehe
a real good trader can make a fortune out of small amount of money while a donkey can lose millions very easily and very rapidly.

You people are so lame! One pretends to be smarter than the other, but they have the same outcome. I bet most of you have a huge or rather large L imprinted on your forheads! )

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Probably got to do with irrational coping behavior - much like post traumatic stress disorder - a guy goes fishing catches nothing all day long and turns to another and says "nice day just wanted to enjoy the sun" - indeed when everyone else went to the beach.

Another main reason a news-trader loses money is the time* he invests to read, research, apply/discard a mountain of info mostly contained by rubbish exactly because it goes with the job.
In the meantime a technical-trader apart from a news-hill climbs also the mountain of the geek stuff.

1) We don't have the money to manipulate the market or carry out algo trading

2) We don't have connections to do insider trading

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Hypothesis: All people who make money on Forex do so due to insider trading.

If so, then, the people "who know" would always initiate the same move at the same time... Since the people "who know" are also the people who have the most part of the money, and growing (because they always know -> they always win, big time) soon there would be no-one else to trade with, hell, soon there would be no money in the world to pay them at all. Hypothesis fail.

Answer:
1. Some people do make money, sometimes, due to insider trading.
2. Very few people have the power to move the market, although maybe they can inch it a little bit at crucial times in order to make others believe it's "a move" and act accordingly.

All of the above are subject to fail as the rest, since no-one knows all the time, and no-one can claim to control it for more than a glimpse of time. The fact that they have a lot of money gives them more vairables to play, right, but also exposes them more to situations where there might be no time for them to pull out when the market goes against them in spite of all their best efforts.

All very interesting...Well some of it !
If you worked out a perfect formula would you tell anyone ? I don't think so. I'm happy just taking a small profit most weeks.
My interest ceases if the poster can't even spell would you trust their maths ?

The article is precisely correct: without solid money management, the trader is subject to excessive losses while, at the same time, running the risk of not realizing maximum gains. A trading plan MUST be in place and must manage every trade. Otherwise emotions take over and bad judgment can override what might otherwise be a profitable position. Understanding the risk associated with leverage is a fundamental necessity. I have been primarily an options spread trader for the past six years and am expanding into FX now that my rules successfully run my options trades. Take the statements in this article to heart: if you don't know how to manage risk, get out of your positions, study the principles of risk management and only paper trade until you have mastered them.